RESCUE PACKAGE:US TREASURY secretary Hank Paulson and chairman of the Federal Reserve Ben Bernanke encountered hostility and anger from Democratic and Republican legislators as they sought swift backing for a $700 billion bailout for institutional holders of toxic mortgage assets.
Having urged members of the US Senate banking committee to approve quickly the plan to avoid the threat of "a continuing series" of bank failures and frozen credit markets, Mr Paulson heard claims from Republican senator Jim Bunning that the initiative was "un-American" and amounted to "financial socialism".
As US stocks veered between positive and negative territory while markets dropped in Europe, Mr Bernanke said global financial markets remained under "extraordinary" stress. "Action by Congress is urgently required to stabilise the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy," said Mr Bernanke. Failure to adopt the proposal quickly would lead to higher job losses and unemployment, increased foreclosures and lower economic growth.
However, committee members expressed scepticism about the speed with which the government was seeking to act and had reservations about the breadth of the plan and the absence of clarity about how it would work.
"This proposal is stunning and unprecedented in its scope and lack of detail," said Christopher Dodd, the Democrat who chairs the committee. The US government now "runs, supports or outright owns vast swathes" of the financial sector, he said. "Our collective confidence in our national future has been badly shaken."
Republican senator Richard Shelby said the plan was not workable. Congress was unlikely to resolve the crisis by "spending a massive amount of money on bad securities". Mr Paulson repeatedly stressed that the plan represented the best option currently available.
Any escalation of the crisis would threaten American families' financial well-being, the viability of businesses both small and large, and the very health of the US economy. "We need market confidence and we need the tools to work with . . . I share the outrage that people have," he said. "It's embarrassing for the United States of America."
JP Morgan economist Mike Feroli told The Irish Timesthat there were "a lot of unknowns" in the likely operation of the plan.
"The plan that the treasury put forward has a lot of gaps in terms of how it will be implemented . . . If we get something like the treasury plan implemented in a way that's supportive of mortgage assets, that will be a good thing."
Other analysts raised questions about the prospects of the plan improving the immediate outlook for the economy. The credit crisis had intensified to such an extent that the government bailout plan had "little hope" of improving core fundamentals over the near term, said analyst Meredith Whitney at Oppenheimer.
